DP557 Competition in the British Electricity Spot Market

Author(s): Richard Green , David M G Newbery

Publication Date: May 1991

Keyword(s): Bertrand Competition , Electricity Supply , Supply Functions

JEL(s): 612 , 613

Programme Areas: Applied Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP557.asp

The British electricity supply industry has, with the exception of Nuclear Electric, now been privatized. Bulk supplies of electricity are traded between two dominant generators and many suppliers in an unregulated `pool'. The generators submit a supply schedule of prices for each generating set and receive the market clearing price, which varies with demand over time. It has been claimed that such Bertrand competition should be highly competitive, bit we show that the Nash equilibrium in supply schedules implies a high mark-up on marginal cost and very substantial deadweight losses.